Regions and channels drive steady revenue growth, and profit recovery in 23 years
The company released its 2023 annual report: total revenue for 2023 was approximately US$585 million, +19.4% year-on-year, and net profit to mother was approximately US$77 million, a sharp year-on-year loss (performance was in line with the company's previous forecast range), and plans to pay a year-end dividend (HK15.69 cents per share). Considering the company's regional and channel expansion, we adjusted the net profit forecast for 24-25 years and introduced a net profit forecast of US$0.92/1.08/129 million (US$0.881/102 million 24-25 years ago). As of 2024/3/25, the company agreed to expect PE to be 11 times that of 2024. Considering the Hong Kong stock discount, we gave the company 10 times the 24-year PE valuation, with a target price of HK$6.26 (previous value: HK$4.32, corresponding to 11 times PE in 23 years). Maintain “buy-in.”
Brands from all regions have performed well
Regionally, the company's revenue in North America/Europe/Asia was +17.4%/+16.5%/+83.4%, respectively. Among them, the North American offline channel showed positive performance, driving North America to achieve a higher level (non-Amazon revenue +61.2% YoY); the European revenue growth rate was affected by the 22-year high base, and the growth rate slowed; while the Asian region did not account for a high share and the growth rate was positive. In terms of brands, Etekcity resumed growth in 23 years (+31.5% YoY, mainly driven by body scales, kitchen scales, etc.), Levoit +18.3% YoY (mainly driven by air purifiers and tower fans), and Cosori +17.4% YoY (mainly driven by air fryers, ovens and air humidifiers). Considering that the company is expected to continue to strengthen its product portfolio in various brands in 24 years, increase penetration in the European market, and penetrate the North American cleaning and pet-related household appliances market, we are optimistic about its 24-year revenue growth performance.
The company's gross margin has clearly rebounded
The company's gross margin has clearly rebounded in '23 (46.9%, +17.8pct year over year). Mainly affected by lower subcontracting costs and a significant drop in freight and tariffs. Considering the company's optimized product portfolio, large-scale procurement is still expected to optimize subcontracting costs. At the same time, in the context of little change in freight rates and tariffs, we believe gross margin may remain at a high level.
The sales expense ratio has been optimized
The company's sales and distribution expenses ratio in '23 was 1.3 pct, mainly affected by a 0.7 pct decrease in employee-related expenses. In the context of the company's channel and regional expansion, it can still maintain a low sales expense ratio. We believe this reflects the strong competitiveness of the company's products. In '23, the management fee rate remained flat year over year.
Expected to benefit from regional and product expansion in 24 years
In '23, the company launched new categories such as tower fans, rice cookers, electric pressure cookers, and cleaning appliances as scheduled. '24 may focus on promoting product portfolios such as cleaning appliances, pet appliances, etc., and further explore e-commerce and offline channels in North America, and rely on a high-quality product portfolio to penetrate the European market. We are still optimistic about the company's revenue growth potential.
Risk warning: Revenue growth has slowed; other markets have fallen short of expectations.